# Mattel Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Mattel Inc](/companies/mat.md) (CIK 63276)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 17:38 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038124
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/63276/000162828023038124/mat-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/63276/000162828023038124/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.92bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $3.82bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $940.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $2.03bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $977.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.79bn | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $49.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $148.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $473.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $421.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $30.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $92.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $309.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $296.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $146.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $67.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.41 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 357,474,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 357,977,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$79.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $109.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $455.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $3.04bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $6.24bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $1.30bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $2.33bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $2.04bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 71,493 characters.

In the discussion that follows, "Mattel" refers to Mattel, Inc. and/or one or more of its subsidiaries.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q. Mattel's business is seasonal with consumers making a large percentage of all toy purchases during the traditional holiday season; therefore, results of operations are most comparable to corresponding periods.

The following discussion includes currency exchange rate impact, a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC ("Regulation G"), to supplement the financial results as reported in accordance with GAAP. The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates. Mattel uses this non-GAAP financial measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Management believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to allow them to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures.

The following discussion also includes the use of gross billings, a key performance indicator. Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

Note that amounts shown in millions or billions within this Item 2 may not sum due to rounding.

### Overview

Mattel is a leading global toy company and owner of one of the strongest catalogs of children's and family entertainment franchises in the world. Mattel creates innovative products and experiences that inspire, entertain, and develop children through play. Mattel is focused on the following evolved strategy to grow its intellectual property ("IP") driven toy business and expand its entertainment offering:

- Accelerate topline growth through scaling Mattel's portfolio, growing franchise brands, and advancing e-commerce and direct-to-consumer business, and increasing profitability by continuing to optimize operations; and
- Expand entertainment offering to capture the full value of Mattel's IP in highly accretive business verticals, including content, consumer products, and digital experiences.

Mattel is the owner of a portfolio of iconic brands and partners with global entertainment companies to license other IP. Mattel's portfolio of owned and licensed brands and products are organized into the following categories:

**Dolls—**including brands such as *Barbie, American Girl, Disney Princess* and *Disney Frozen, Monster High*, and *Polly Pocket*. Mattel's Dolls portfolio is driven by the flagship *Barbie* brand and a collection of complementary brands offered globally. Empowering girls since 1959, *Barbie* has inspired the limitless potential of every girl by showing them that they can be anything. *American Girl*, with an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, is best known for imparting valuable life lessons that instill confidence through its inspiring dolls and books, featuring diverse characters from past and present. *American Girl* products are sold directly to consumers through its website, proprietary retail stores in the United States, and at select retailers in the United States and Canada.

**Infant, Toddler, and Preschool—**including brands such as *Fisher-Price, Thomas & Friends*, and *Power Wheels*. As a leader in play and child development, *Fisher-Price'*s mission is to help families by making the most fun, enriching products for infants, toddlers, and preschoolers. *Thomas & Friends* is an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through toys, content, live events, and other consumer products.

**Vehicles—**including brands such as *Hot Wheels* (including *Hot Wheels Monster Trucks* and *Hot Wheels Mario Kart (Nintendo)), Matchbox*, and *Cars (Disney Pixar).* In production for over 50 years, *Hot Wheels* continues to push the limits of performance and design and ignites the challenger spirit of kids, adults, and collectors. From die-cast vehicles to tracks, playsets, and accessories, the Mattel Vehicles portfolio has broad appeal that engages and excites kids of all ages.

**Action Figures, Building Sets, Games, and Other—**including brands such as *Masters of the Universe, MEGA, UNO, Lightyear (Disney Pixar), Jurassic World (NBCUniversal), WWE,* and *Star Wars (Disney's Lucasfilm).* Mattel's Action Figures portfolio is comprised of product lines associated with licensed entertainment franchises that are driven by major tentpole releases, such as *Lightyear* and *Jurassic World*, as well as product lines from Mattel's owned IP, such as *Masters of the Universe.* As the challenger brand in Building Sets, *MEGA* sparks creativity through the power of connection with builders of all ages and fans of global franchises. Within Games, *UNO* is the classic matching card game that is easy to learn and fast fun for everyone. Other includes Plush, which contains products associated with movie releases from licensed entertainment franchises, as well as Mattel-owned IP.

### Recent Developments

Mattel's third quarter 2023 financial results showed meaningful sales growth, gross margin expansion, and improvement to operating cash flows, with significant contributions from the theatrical release of the *Barbie* movie during the quarter. Third quarter 2023 net sales increased $163.0 million to $1.92 billion and gross margin improved to 51.0%, from 48.2% in the third quarter of 2022.

Mattel's cash flows used for operations were $79.6 million for the first nine months of 2023, an improvement of $195.1 million as compared to the first nine months of 2022. Mattel executed $60.0 million of share repurchases in the third quarter of 2023, and has executed $109.9 million of repurchases during the first nine months of 2023. As of September 30, 2023 Mattel has a remaining authorization of $93.2 million under its existing share repurchase program.

Retailer inventory levels were elevated entering 2023. During the first nine months of 2023, retailer inventory levels improved and at the end of the third quarter had decreased compared to prior year levels. Additionally, as of September 30, 2023, Mattel's owned inventory had also decreased by $293.2 million compared to prior year levels.

Mattel is operating in a challenging macro-economic environment with higher volatility that may impact consumer demand. To the extent the macro-economic environment remains challenging, or worsens, it may have a material effect on Mattel's results of operations and financial condition. Refer to Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K for further discussion regarding potential impacts on Mattel's business.

### Russia - Ukraine War

The ongoing war between Russia and Ukraine has led to volatility and disruption in these countries. The length and impact of the ongoing war is highly unpredictable. While Mattel has no direct operations in Ukraine, its operations in Russia have experienced significant disruption and Mattel paused all shipments into Russia in early 2022. Mattel's net sales in these two countries represented less than 2% of total net sales during the nine months ended September 30, 2022.

### Results of Operations—Third Quarter

#### Consolidated Results

The following table presents Mattel's consolidated results for the third quarter of 2023 and 2022:

*(In millions, except percentage and basis point information)*

| September 30, 2023 Amount | For the Three Months Ended % of Net Sales | Amount | September 30, 2022 | % of Net Sales% | Year/Year Change Basis Points of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $1,918.8 |  | $1,755.8 |  | 9% |  |
| Cost of sales | 940.9 | 49.0% | 908.9 | 51.8% | 4% | (280) |
| Gross profit | 977.9 | 51.0% | 846.9 | 48.2% | 15% | 280 |
| Advertising and promotion expenses | 124.3 | 6.5% | 127.6 | 7.3% | -3% | (80) |
| Other selling and administrative expenses | 379.8 | 19.8% | 327.9 | 18.7% | 16% | 110 |
| Operating income | 473.9 | 24.7% | 391.4 | 22.3% | 21% | 240 |
| Interest expense | 30.7 | 1.6% | 33.9 | 1.9% | -9% | (30) |
| Interest (income) | (4.6) | -0.2% | (1.9) | -0.1% | 140% | (10) |
| Other non-operating (income), net | (2.4) |  | (4.3) |  |  |  |
| Income before income taxes | 450.1 | 23.5% | 363.7 | 20.7% | 24% | 280 |
| Provision for income taxes | 309.3 |  | 80.0 |  |  |  |
| (Income) from equity method investments | (5.6) |  | (6.2) |  |  |  |
| Net income | $146.3 | 7.6% | $289.9 | 16.5% | -50% | (890) |

#### Sales

Net sales in the third quarter of 2023 were $1.92 billion, an increase of $163.0 million, or 9%, as compared to $1.76 billion in the third quarter of 2022. The increase in net sales was the result of an increase in gross billings of $173.7 million, partially offset by an increase in sales adjustments of $10.7 million.

Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following tables provide a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the third quarter of 2023 and 2022:

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $884.5 | $697.2 | 27% | 3% |
| Infant, Toddler, and Preschool | 361.1 | 370.1 | -2% | 3% |
| Vehicles | 518.5 | 437.9 | 18% | 3% |
| Action Figures, Building Sets, Games, and Other | 357.7 | 442.9 | -19% | 2% |
| Gross Billings | $2,121.8 | $1,948.0 | 9% | 3% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $605.1 | $519.6 | 16% | 2% |
| Hot Wheels | 454.8 | 371.6 | 22% | 3% |
| Fisher-Price | 317.0 | 319.0 | -1% | 2% |
| Other | 744.9 | 737.9 | 1% | 3% |
| Gross Billings | $2,121.8 | $1,948.0 | 9% | 3% |

29

Gross billings were $2.12 billion in the third quarter of 2023, an increase of $173.7 million, or 9%, as compared to $1.95 billion in the third quarter of 2022, with a favorable impact from changes in currency exchange rates of three percentage points. The increase in gross billings was primarily due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games, and Other, and Infant, Toddler, and Preschool.

Dolls gross billings increased 27%, of which 12% was due to higher billings of *Barbie*, driven primarily by licensing revenues associated with the release of the *Barbie* movie, 12% was due to higher billings of *Disney Princess* and *Disney Frozen* products, and 4% was due to higher billings of *Monster High* products.

Infant, Toddler, and Preschool gross billings decreased 2%, primarily due to lower billings of *Thomas & Friends* products.

Vehicles gross billings increased 18%, primarily due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 19%, of which 12% was due to lower billings of *Jurassic World* products and 8% was due to lower billings of *Lightyear* products, following their theatrical releases during the second quarter of 2022, partially offset by higher billings of Buildings Sets products of 4%.

Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Additionally, sales adjustments may include foreign currency transaction gains and losses from the remeasurement of accounts receivable denominated in currencies that are different from the relevant entity’s functional currency. Sales adjustments increased to $203.0 million in the third quarter of 2023, from $192.3 million in the third quarter of 2022, due to higher gross billings. Sales adjustments as a percentage of net sales was relatively consistent at 10.6% in the third quarter of 2023, as compared to 11.0% in the third quarter of 2022.

#### Cost of Sales

Cost of sales increased by $32.0 million, or 4%, to $940.9 million in the third quarter of 2023 from $908.9 million in the third quarter of 2022. Within cost of sales, royalty expense increased by $14.5 million, or 20%, to $87.6 million in the third quarter of 2023 from $73.2 million in the third quarter of 2022, freight and logistics expenses increased by $8.8 million, or 11%, to $92.0 million in the third quarter of 2023 from $83.2 million in the third quarter of 2022, and product and other costs increased by $8.7 million, or 1%, to $761.3 million in the third quarter of 2023 from $752.5 million in the third quarter of 2022.

#### Gross Margin

Gross margin increased to 51.0% in the third quarter of 2023 from 48.2% in the third quarter of 2022. The increase in gross margin was primarily due to favorable mix of 170 basis points, which primarily related to the release of the *Barbie* movie, favorable pricing of 140 basis points, incremental realized savings from the Optimizing for Growth program of 130 basis points, and cost deflation of 70 basis points. These favorable factors were partially offset by unfavorable fixed cost absorption and other supply chain costs of 230 basis points.

#### Advertising and Promotion Expenses

Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements; (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs; (iii) retail advertising costs, which include consumer direct catalogs; and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 6.5% in the third quarter of 2023 from 7.3% in the third quarter of 2022, primarily due to the 9% increase in net sales as compared to the third quarter of 2022.

#### Other Selling and Administrative Expenses

Other selling and administrative expenses were $379.8 million, or 19.8% of net sales, in the third quarter of 2023, an increase of $51.9 million, as compared to $327.9 million, or 18.7% of net sales, in the third quarter of 2022. The increase in other selling and administrative expenses was primarily due to higher severance and restructuring charges of $24.7 million, higher incentive compensation expense of $18.0 million, and salary and market-related pay increases of $7.5 million, partially offset by incremental realized savings from the Optimizing for Growth program of $12.5 million.

#### Interest Expense

Interest expense was $30.7 million in the third quarter of 2023, as compared to $33.9 million in the third quarter of 2022. The decrease in interest expense was due to the $250.0 million repayment of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.

#### Provision for Income Taxes

Mattel's provision for income taxes was $309.3 million in the third quarter of 2023, as compared to $80.0 million in the third quarter of 2022. The provision for income taxes during the three months ended 2023 included a net discrete income tax expense of $200.7 million, which included the establishment of a valuation allowance of $212.4 million on certain foreign deferred tax assets during the third quarter of 2023 resulting from the planned intra-group transfer of certain IP rights, partially offset by other discrete income tax benefits of $11.7 million. During the three months ended September 30, 2022, Mattel recognized a net discrete income tax benefit of $19.4 million, primarily related to income taxes recorded on a discrete basis in various jurisdictions and reassessments of prior years' tax liabilities.

Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the third quarter of 2023, Mattel finalized a plan to complete an intra-group transfer of certain IP rights, resulting in the establishment of a valuation allowance on certain foreign deferred tax assets of $212.4 million that will not be realized upon execution of the plan. While the transfer will not result in a taxable gain, Mattel expects to recognize a one-time tax benefit of approximately $53 million in the fourth quarter of 2023, when the transaction is completed, in connection with the establishment of deferred tax assets related to the transferred IP.

### Segment Results

#### North America Segment

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the third quarter of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $1,104.4 | $1,002.1 | 10% | —% |
| Segment Operating Income | 405.7 | 337.3 | 20% |  |

Net sales for the North America segment in the third quarter of 2023 were $1.10 billion, an increase of $102.2 million, or 10%, as compared to $1.00 billion in the third quarter of 2022. The increase in net sales was the result of an increase in gross billings of $108.9 million, partially offset by an increase in sales adjustments of $6.6 million.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $468.5 | $342.9 | 37% | —% |
| Infant, Toddler, and Preschool | 230.6 | 239.8 | -4% | —% |
| Vehicles | 263.4 | 226.3 | 16% | -1% |
| Action Figures, Building Sets, Games, and Other | 214.1 | 258.7 | -17% | —% |
| Gross Billings | $1,176.6 | $1,067.8 | 10% | —% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $349.9 | $278.5 | 26% | —% |
| Hot Wheels | 225.7 | 184.1 | 23% | —% |
| Fisher-Price | 204.8 | 206.4 | -1% | —% |
| Other | 396.2 | 398.8 | -1% | —% |
| Gross Billings | $1,176.6 | $1,067.8 | 10% | —% |

Gross billings for the North America segment were $1.18 billion in the third quarter of 2023, an increase of $108.9 million, or 10%, as compared to $1.07 billion in the third quarter of 2022. The increase in the North America segment gross billings was primarily due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games, and Other, and Infant, Toddler, and Preschool.

Dolls gross billings increased 37%, of which 21% was due to higher billings of *Barbie*, driven primarily by licensing revenues associated with the release of the *Barbie* movie, and 15% was due to higher billing of *Disney Princess* and *Disney Frozen* products.

Infant, Toddler, and Preschool gross billings decreased 4%, primarily due to lower billings of *Thomas & Friends* products.

Vehicles gross billings increased 16%, due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 17%, of which 11% was due to lower billings of *Jurassic World* products and 7% was due to lower billings of *Lightyear* products, following their theatrical releases during the second quarter of 2022, and 4% was due to lower billings of other Action Figures products, partially offset by higher billings of Buildings Sets products of 4%.

Sales adjustments increased to $72.2 million in the third quarter of 2023 from $65.6 million in the third quarter of 2022, primarily due to higher gross billings. Sales adjustments as a percentage of net sales were flat at 6.5% in the third quarter of 2023 and 2022.

Cost of sales increased by $31.2 million, or 6%, to $553.3 million in the third quarter of 2023 from $522.2 million in the third quarter of 2022, due to an increase in product and other costs of $13.3 million, an increase in freight and logistics expenses of $9.1 million, and an increase in royalty expenses of $8.8 million.

Gross margin in the third quarter of 2023 increased to 49.9% from 47.9% in the third quarter of 2022, primarily due to favorable mix of 140 basis points, which primarily related to the release of the *Barbie* movie, incremental realized savings from the Optimizing for Growth program of 130 basis points, favorable pricing of 80 basis points, and cost deflation of 70 basis points, partially offset by unfavorable fixed cost absorption and other supply chain costs of 220 basis points.

North America segment operating income was $405.7 million in the third quarter of 2023, as compared to segment operating income of $337.3 million in the third quarter of 2022, primarily due to higher gross profit.

#### International Segment

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the International segment for the third quarter of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $771.8 | $704.6 | 10% | 7% |
| Segment Operating Income | 202.5 | 162.8 | 24% |  |

Net sales for the International segment in the third quarter of 2023 were $771.8 million, an increase of $67.2 million, or 10%, as compared to $704.6 million in the third quarter of 2022. The increase in net sales was the result of an increase in gross billings of $71.4 million, partially offset by an increase in sales adjustments of $4.2 million.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $371.7 | $303.5 | 22% | 7% |
| Infant, Toddler, and Preschool | 130.5 | 130.3 | —% | 8% |
| Vehicles | 255.0 | 211.6 | 21% | 8% |
| Action Figures, Building Sets, Games, and Other | 143.6 | 184.2 | -22% | 5% |
| Gross Billings | $900.9 | $829.5 | 9% | 7% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $255.2 | $241.1 | 6% | 6% |
| Hot Wheels | 229.1 | 187.5 | 22% | 7% |
| Fisher-Price | 112.2 | 112.6 | —% | 8% |
| Other | 304.4 | 288.3 | 6% | 7% |
| Gross Billings | $900.9 | $829.5 | 9% | 7% |

Gross billings for the International segment were $900.9 million in the third quarter of 2023, an increase of $71.4 million, or 9%, as compared to $829.5 million in the third quarter of 2022, with a favorable impact from changes in currency exchange rates of seven percentage points. The increase in the International segment gross billings was due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games, and Other.

Dolls gross billings increased 22%, of which 11% was due to higher billings of *Disney Princess* and *Disney Frozen* products, 9% was due to higher billings of *Monster High* products, and 5% was due to higher billings of *Barbie*, driven primarily by licensing revenues associated with the release of the *Barbie* movie.

Infant, Toddler, and Preschool gross billings were flat year-over-year.

Vehicles gross billings increased 21%, primarily due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 22%, primarily due to lower billings of *Jurassic World* products of 13% and lower billings of *Lightyear* products of 10%, following their theatrical releases during the second quarter of 2022, partially offset by higher billings of Buildings Sets products of 3%.

Sales adjustments increased to $129.1 million in the third quarter of 2023 from $124.9 million in the third quarter of 2022. Sales adjustments as a percentage of net sales decreased to 16.7% in the third quarter of 2023 from 17.7% in the third quarter of 2022. The decrease in sales adjustments as a percentage of net sales was primarily due to higher gross billings, which includes licensing revenues associated with the release of the *Barbie* movie.

Cost of sales increased by $28.5 million, or 8%, to $399.4 million in the third quarter of 2023 from $370.9 million in the third quarter of 2022, primarily due to an increase in product and other costs of $22.6 million.

Gross margin increased to 48.3% in the third quarter of 2023 from 47.4% in the third quarter of 2022, primarily due to favorable pricing actions of 250 basis points, favorable mix of 230 basis points, which primarily related to the release of the *Barbie* movie, incremental realized savings from the Optimizing for Growth program of 140 basis points, and cost deflation of 80 basis points. These favorable factors were partially offset by unfavorable foreign currency exchange of 330 basis points and unfavorable fixed cost absorption from lower production volumes and other supply chain costs of 280 basis points.

International segment operating income was $202.5 million in the third quarter of 2023, as compared to segment operating income of $162.8 million in the third quarter of 2022, primarily due to higher gross profit.

#### American Girl Segment

The following table provides a summary of Mattel's net sales and segment operating loss for the American Girl segment for the third quarter of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Three Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $42.6 | $49.0 | -13% | —% |
| Segment Operating Loss | (4.6) | (9.0) | -49% |  |

Net sales for the American Girl segment in the third quarter of 2023 were $42.6 million, a decrease of $6.4 million, or 13%, as compared to $49.0 million in the third quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $6.5 million, or 13%. Gross billings decreased to $44.3 million in the third quarter of 2023 from $50.7 million in the third quarter of 2022, primarily due to lower billings of *Truly Me* products.

Sales adjustments were flat at $1.7 million in the third quarter of 2023 and 2022.

Cost of sales decreased by $3.0 million, or 13%, to $20.0 million in the third quarter of 2023, as compared to a 13% decrease in net sales, primarily due to a decrease in product and other costs of $2.4 million.

Gross margin was relatively consistent at 52.9% in the third quarter of 2023, as compared to 53.0% in the third quarter of 2022.

American Girl segment operating loss was $4.6 million in the third quarter of 2023, as compared to segment operating loss of $9.0 million in the third quarter of 2022, primarily due to lower advertising and promotion expenses.

### Results of Operations—First Nine Months

#### Consolidated Results

The following table presents Mattel's consolidated results for the first nine months of 2023 and 2022:

*(In millions, except percentage and basis point information)*

| September 30, 2023 Amount | For the Nine Months Ended % of Net Sales | Amount | September 30, 2022 | % of Net Sales% | Year/Year Change Basis Points of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $3,820.5 |  | $4,032.8 |  | -5% |  |
| Cost of sales | 2,027.0 | 53.1% | 2,154.1 | 53.4% | -6% | (30) |
| Gross profit | 1,793.5 | 46.9% | 1,878.7 | 46.6% | -5% | 30 |
| Advertising and promotion expenses | 290.3 | 7.6% | 291.5 | 7.2% | —% | 40 |
| Other selling and administrative expenses | 1,081.6 | 28.3% | 990.6 | 24.6% | 9% | 370 |
| Operating income | 421.6 | 11.0% | 596.5 | 14.8% | -29% | (380) |
| Interest expense | 92.5 | 2.4% | 99.7 | 2.5% | -7% | (10) |
| Interest (income) | (15.4) | -0.4% | (5.1) | -0.1% | 204% | (30) |
| Other non-operating (income) expense, net | (6.0) |  | 12.0 |  |  |  |
| Income before income taxes | 350.5 | 9.2% | 489.9 | 12.1% | -28% | (290) |
| Provision for income taxes | 296.8 |  | 130.5 |  |  |  |
| (Income) from equity method investments | (13.3) |  | (18.4) |  |  |  |
| Net income | $67.0 | 1.8% | $377.8 | 9.4% | -82% | (760) |

#### Sales

Net sales in the first nine months of 2023 were $3.82 billion, a decrease of $212.2 million, or 5%, as compared to $4.03 billion in the first nine months of 2022. The decrease in net sales was the result of a decrease in gross billings of $228.1 million, partially offset by a decrease in sales adjustments of $15.9 million.

Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following tables provide a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the first nine months of 2023 and 2022:

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $1,631.1 | $1,494.6 | 9% | 1% |
| Infant, Toddler, and Preschool | 708.6 | 850.3 | -17% | 1% |
| Vehicles | 1,165.9 | 1,048.3 | 11% | 1% |
| Action Figures, Building Sets, Games, and Other | 755.0 | 1,095.5 | -31% | 1% |
| Gross Billings | $4,260.6 | $4,488.7 | -5% | 1% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $1,064.7 | $1,118.4 | -5% | 1% |
| Hot Wheels | 1,014.9 | 899.5 | 13% | 2% |
| Fisher-Price | 607.3 | 719.1 | -16% | 1% |
| Other | 1,573.7 | 1,751.6 | -10% | 1% |
| Gross Billings | $4,260.6 | $4,488.7 | -5% | 1% |

Gross billings were $4.26 billion in the first nine months of 2023, a decrease of $228.1 million, or 5%, as compared to $4.49 billion in the first nine months of 2022. The decrease in gross billings for the first nine months of 2023 was primarily due to lower billings of Action Figures, Building Sets, Games, and Other, and Infant, Toddler, and Preschool, partially offset by higher billings of Dolls and Vehicles.

Dolls gross billings increased 9%, of which 11% was due to higher billings of *Disney Princess* and *Disney Frozen* products, and 6% was due to higher billings of *Monster High* products, partially offset by lower billings of *Barbie* products of 4%, and lower billings of *Enchantimals* products of 2%.

Infant, Toddler, and Preschool gross billings decreased 17%, of which 13% was due to lower billings of *Fisher-Price* products and 2% was due to lower billings of *Fisher-Price Friends* products.

Vehicles gross billings increased 11%, primarily due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 31%, of which 16% was due to lower billings of *Jurassic World* products and 10% was due to lower billings of *Lightyear* products, following their theatrical releases during the second quarter of 2022, and 4% was due to lower billings of other Action Figures products.

Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Additionally, sales adjustments may include foreign currency transaction gains and losses from the remeasurement of accounts receivable denominated in currencies that are different from the relevant entity’s functional currency. Sales adjustments decreased to $440.1 million in the first nine months of 2023 from $456.0 million in the first nine months of 2022, primarily due to lower gross billings. Sales adjustments as a percentage of net sales was relatively consistent at 11.5% in the first nine months of 2023, as compared to 11.3% in the first nine months of 2022.

#### Cost of Sales

Cost of sales decreased by $127.1 million, or 6%, to $2.03 billion in the first nine months of 2023 from $2.15 billion in the first nine months of 2022. Within cost of sales, product and other costs decreased by $132.1 million, or 8%, to $1.62 billion in the first nine months of 2023 from $1.75 billion in the first nine months of 2022, freight and logistics expenses increased by $7.9 million, or 4%, to $230.2 million in the first nine months of 2023, as compared to $222.3 million in the first nine months of 2022, and royalty expense was relatively consistent at $175.0 million in the first nine months of 2023, as compared to $177.9 million in the first nine months of 2022.

#### Gross Margin

Gross margin increased to 46.9% in the first nine months of 2023 from 46.6% in the first nine months of 2022. The increase in gross margin was primarily due to favorable pricing of 150 basis points, incremental realized savings from the Optimizing for Growth program of 140 basis points, and favorable mix of 90 basis points, which primarily related to the release of the *Barbie* movie, partially offset by inventory management efforts of 100 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 50 basis points, and unfavorable fixed cost absorption and other supply chain costs of 200 basis points.

#### Advertising and Promotion Expenses

Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements; (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs; (iii) retail advertising costs, which include consumer direct catalogs; and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales was relatively consistent at 7.6% in the first nine months of 2023, as compared to 7.2% in the first nine months of 2022.

#### Other Selling and Administrative Expenses

Other selling and administrative expenses were $1.08 billion, or 28.3% of net sales, in the first nine months of 2023, as compared to $990.6 million, or 24.6% of net sales, in the first nine months of 2022. The increase in other selling and administrative expenses was primarily due to higher severance and restructuring charges of $45.9 million, market-related pay increases of $35.4 million, higher incentive compensation of $21.1 million, and a prior year gain on the sale of the American Girl corporate office and distribution center in the second quarter of 2022 of $15.2 million, partially offset by incremental realized savings from the Optimizing for Growth program of $32.2 million.

#### Interest Expense

Interest expense was $92.5 million in the first nine months of 2023, as compared to $99.7 million in the first nine months of 2022. The decrease in interest expense was primarily due to the $250.0 million repayment of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.

#### Provision for Income Taxes

Mattel's provision for income taxes was $296.8 million in the first nine months of 2023, as compared to $130.5 million in the first nine months of 2022. The provision for income taxes during the nine months ended 2023 included a net discrete income tax expense of $201.0 million, which included the establishment of a valuation allowance of $212.4 million on certain foreign deferred tax assets during the third quarter of 2023 resulting from the planned intra-group transfer of certain IP rights, partially offset by other discrete income tax benefits of $11.4 million. During the nine months ended September 30, 2022, Mattel recognized a net discrete income tax benefit of $4.8 million, primarily related to income taxes recorded on a discrete basis in various jurisdictions and reassessments of prior years' tax liabilities.

Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the third quarter of 2023, Mattel finalized a plan to complete an intra-group transfer of certain IP rights, resulting in the establishment of a valuation allowance on certain foreign deferred tax assets of $212.4 million that will not be realized upon execution of the plan. While the IP transfer will not result in a taxable gain, Mattel expects to recognize a one-time tax benefit of approximately $53 million in the fourth quarter of 2023, when the transaction is completed, in connection with the establishment of deferred tax assets related to the transferred IP.

### Segment Results

#### North America Segment

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the first nine months of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $2,138.2 | $2,330.8 | -8% | —% |
| Segment Operating Income | 589.7 | 707.6 | -17% |  |

Net sales for the North America segment in the first nine months of 2023 were $2.14 billion, a decrease of $192.5 million, or 8%, as compared to $2.33 billion in the first nine months of 2022. The decrease in net sales was the result of a decrease in gross billings of $201.9 million, partially offset by a decrease in sales adjustments of $9.3 million.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $812.3 | $715.8 | 13% | -1% |
| Infant, Toddler, and Preschool | 437.7 | 549.6 | -20% | —% |
| Vehicles | 579.1 | 550.7 | 5% | —% |
| Action Figures, Building Sets, Games, and Other | 453.4 | 668.3 | -32% | —% |
| Gross Billings | $2,282.5 | $2,484.4 | -8% | —% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $587.6 | $599.2 | -2% | —% |
| Hot Wheels | 492.3 | 458.4 | 7% | -1% |
| Fisher-Price | 380.9 | 469.2 | -19% | —% |
| Other | 821.8 | 957.6 | -14% | —% |
| **Gross Billings** | $2,282.5 | $2,484.4 | -8% | —% |

Gross billings for the North America segment were $2.28 billion in the first nine months of 2023, a decrease of $201.9 million, or 8%, as compared to $2.48 billion in the first nine months of 2022. The decrease in the North America segment gross billings for the first nine months of 2023 was primarily due to lower billings of Action Figures, Building Sets, Games, and Other, and Infant, Toddler, and Preschool, partially offset by higher billings of Dolls and Vehicles.

Dolls gross billings increased 13%, of which 12% was due to higher billings of *Disney Princess* and *Disney Frozen* products and 5% was due to higher billings of *Monster High* products, partially offset by lower billings of *Polly Pocket* products of 2%.

Infant, Toddler, and Preschool gross billings decreased 20%, of which 16% was due to lower billings of *Fisher-Price* products and 2% was due to lower billings of *Thomas & Friends* products.

Vehicles gross billings increased 5%, primarily due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 32%, of which 16% was due to lower billings of *Jurassic World* products and 9% was due to lower billings of *Lightyear* products, following their theatrical releases during the second quarter of 2022, and 4% was due to lower billings of other Action Figures products.

Sales adjustments decreased to $144.3 million in the first nine months of 2023 from $153.6 million in the first nine months of 2022, primarily due to lower gross billings. Sales adjustments as a percentage of net sales were relatively consistent at 6.7% for the first nine months of 2023, as compared to 6.6% for the first nine months of 2022.

Cost of sales decreased by $84.6 million, or 7%, to $1.16 billion in the first nine months of 2023 from $1.25 billion in the first nine months of 2022, primarily due to a decrease in product and other costs of $86.8 million.

Gross margin in the first nine months of 2023 decreased to 45.5% from 46.4% in the first nine months of 2022, primarily due to inventory management efforts of 90 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 50 basis points, and unfavorable fixed cost absorption and other supply chain costs of 240 basis points. These negative factors were partially offset by incremental realized savings from the Optimizing for Growth program of 120 basis points, favorable pricing of 90 basis points, and favorable mix of 80 basis points, which primarily related to the release of the *Barbie* movie.

North America segment operating income was $589.7 million in the first nine months of 2023, as compared to segment operating income of $707.6 million in the first nine months of 2022. The decrease was primarily due to lower gross profit.

#### International Segment

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the International segment for the first nine months of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $1,578.6 | $1,584.9 | —% | 3% |
| Segment Operating Income | 245.8 | 268.0 | -8% |  |

Net sales for the International segment were relatively consistent at $1.58 billion, in the first nine months of 2023 and 2022.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $712.0 | $658.3 | 8% | 3% |
| Infant, Toddler, and Preschool | 270.9 | 300.6 | -10% | 3% |
| Vehicles | 586.8 | 497.6 | 18% | 3% |
| Action Figures, Building Sets, Games, and Other | 301.7 | 427.3 | -29% | 3% |
| Gross Billings | $1,871.3 | $1,883.9 | -1% | 3% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $477.1 | $519.3 | -8% | 2% |
| Hot Wheels | 522.6 | 441.1 | 18% | 3% |
| Fisher-Price | 226.4 | 249.9 | -9% | 4% |
| Other | 645.1 | 673.6 | -4% | 3% |
| Gross Billings | $1,871.3 | $1,883.9 | -1% | 3% |

Gross billings for the International segment were $1.87 billion in the first nine months of 2023, a decrease of $12.6 million, or 1%, as compared to $1.88 billion in the first nine months of 2022. The decrease in the International segment gross billings was due to lower billings of Action Figures, Building Sets, Games, and Other, and Infant, Toddler, and Preschool, partially offset by higher billings of Vehicles and Dolls.

Dolls gross billings increased 8%, of which 12% was due to higher billings of *Disney Princess* and *Disney Frozen* products and 8% was due to higher billings of *Monster High* products, partially offset by lower billings of *Barbie* products of 6%, and lower billings of *Enchantimals* products of 4%.

Infant, Toddler, and Preschool gross billings decreased 10%, primarily due to lower billings of *Fisher-Price* products.

Vehicles gross billings increased 18%, primarily due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 29%, of which 15% was due to lower billings of *Jurassic World* products and 10% was due to lower billings of *Lightyear* products, following their theatrical releases during the second quarter of 2022, and 2% was due to lower billings of other Action Figures products.

Sales adjustments decreased to $292.7 million in the first nine months of 2023 from $299.0 million in the first nine months of 2022, primarily due to lower gross billings. Sales adjustments as a percentage of net sales were relatively consistent at 18.5% for the first nine months of 2023, as compared to 18.9% for the first nine months of 2022.

Cost of sales increased by $13.4 million, or 2%, to $866.1 million in the first nine months of 2023 from $852.8 million in the first nine months of 2022, primarily due to an increase in product and other costs of $10.0 million.

Gross margin decreased to 45.1% in the first nine months of 2023 from 46.2% in the first nine months of 2022, primarily due to unfavorable foreign currency exchange of 220 basis points, inventory management efforts of 120 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 40 basis points, and unfavorable fixed cost absorption from lower production volumes and other supply chain costs of 250 basis points. These negative factors were partially offset by favorable pricing actions of 250 basis points, incremental realized savings from the Optimizing for Growth program of 160 basis points, and favorable mix of 110 basis points, which primarily related to the release of the *Barbie* movie.

International segment operating income was $245.8 million in the first nine months of 2023, as compared to segment operating income of $268.0 million in the first nine months of 2022, primarily due to lower gross profit.

#### American Girl Segment

The following table provides a summary of Mattel's net sales and segment operating loss for the American Girl segment for the first nine months of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Nine Months Ended September 30, 2023 | September 30, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $103.7 | $117.1 | -11% | —% |
| Segment Operating Loss | (24.1) | (20.4) | 18% |  |

Net sales for the American Girl segment in the first nine months of 2023 were $103.7 million, a decrease of $13.4 million, or 11%, as compared to $117.1 million in the first nine months of 2022. The decrease in net sales was the result of a decrease in gross billings of $13.7 million, or 11%, to $106.8 million in the first nine months of 2023 from $120.5 million in the first nine months of 2022. The decrease in net sales was primarily due to lower billings of *Girl of the Year* dolls.

Sales adjustments were $3.1 million in the first nine months of 2023, as compared to $3.3 million in the first nine months of 2022.

Cost of sales decreased by $6.0 million, or 11%, to $50.6 million in the first nine months of 2023, as compared to an 11% decrease in net sales in the first nine months of 2023, primarily due to a decrease in product and other costs of $5.2 million.

Gross margin decreased to 51.2% in the first nine months of 2023 from 51.7% in the first nine months of 2022, primarily due to cost inflation of 190 basis points, and unfavorable fixed cost absorption of 90 basis points, partially offset by incremental realized savings from the Optimizing for Growth program of 120 basis points and favorable product mix and other of 110 basis points.

American Girl segment operating loss was $24.1 million in the first nine months of 2023, as compared to segment operating loss of $20.4 million in the first nine months of 2022, primarily due to lower gross profit of $7.5 million. In addition, other selling and administrative expenses were flat compared to prior year, as a $15.2 million gain on sale of the American Girl corporate office and distribution center that was recognized in the first nine months of 2022 was offset by lower rent expense of $7.1 million and lower miscellaneous other selling and administrative expenses in the first nine months of 2023.

### Cost Savings Program

#### Optimizing for Growth (formerly Capital Light)

In February 2021, Mattel announced the Optimizing for Growth program, a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"), which had targeted annual gross cost savings of $250 million from actions expected to be completed beginning 2021 through 2023. In February 2023, Mattel expanded the Program and increased the targeted annual gross cost savings from $250 million to $300 million, reflecting additional initiatives, including actions to further streamline Mattel's organizational structure. As of September 30, 2023, Mattel had realized annual gross cost savings of approximately $297 million and expects to exceed the targeted annual gross costs savings of $300 million during the fourth quarter of 2023.

Of the $300 million in targeted gross cost savings, approximately 60% is expected to benefit cost of sales, 30% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses. Estimated total cash expenditures associated with the Program, excluding previous actions taken under the Capital Light program, are expected to be approximately $155 to $185 million.

Mattel estimates the cost of actions for the Program, excluding previous actions taken under the Capital Light program, to be as follows:

| Optimizing for Growth - Actions | Estimate of Cost |
| --- | --- |
| Employee severance | $50 to $60 million |
| Real estate/supply chain optimization and other restructuring costs | $30 to $40 million |
| Non-cash charges (a) | $55 to $60 million |
| **Total estimated severance and restructuring costs** | **$135 to $160 million** |
| Information technology enhancements and other investments | $75 to $85 million |
| **Total estimated actions** | **$210 to $245 million** |

(a) *Non-cash charges include $45.4 million of currency translation losses that were recognized within other non-operating expense, net, in the consolidated statement of operations during the fourth quarter of 2022 as a result of Mattel's liquidation of its subsidiary in Argentina, which was substantially completed in 2022.*

Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, targeted annual gross cost savings for the Program are $375 million by 2023, with total expected cash expenditures of approximately $195 to $225 million, and total expected non-cash charges of approximately $75 million. Of the $375 million in targeted annual gross cost savings, approximately 65% was expected to benefit cost of sales, 25% was expected to benefit other selling and administrative expenses, and 10% was expected to benefit advertising and promotion expenses.

In connection with the Program, Mattel has recorded severance and other restructuring costs in the following cost and expense categories within operating income in the consolidated statements of operations:

*(In millions)*

|  | For the Three Months Ended September 30, 2023 | September 30, 2022 | For the Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cost of sales (a) | $(0.1) | $1.4 | $(1.3) | $9.8 |
| Other selling and administrative expenses (b) | 3.1 | 4.4 | 31.6 | 16.6 |
|  | $3.0 | $5.8 | $30.3 | $26.4 |

(a) *Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations are included in segment operating income in "Note 21 to the Consolidated Financial Statements—Segment Information."*

(b) *Severance and other restructuring costs recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 21 to the Consolidated Financial Statements—Segment Information."*

As of September 30, 2023, Mattel has recorded cumulative severance and other restructuring charges related to the Program of approximately $196 million, which include approximately $73 million of non-cash charges. Non-cash charges include $45.4 million recorded in non-operating expense, net, during 2022 related to the liquidation of Mattel's subsidiary in Argentina. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $372 million, which represents approximately 70% benefit to cost of sales, 25% benefit to other selling and administrative expenses, and 5% benefit to advertising and promotion expenses, as of September 30, 2023, in connection with the Program.

#### Other Cost Savings Actions

On September 14, 2023, Mattel committed to cost savings actions not included in the Program to optimize its manufacturing footprint by discontinuing production at a plant located in China, which actions were announced to plant employees on November 8, 2023. The targeted annual gross cost savings from these actions, which are expected to be completed at the end of 2024, are approximately $21 million and are expected to benefit cost of sales of the North America and International segments. During the three months ended September 30, 2023, Mattel recorded severance expense in connection with these actions of $25.3 million within other selling and administrative expenses in the consolidated statements of operations. Total expected cash charges in connection with these actions are approximately $30 to $35 million, which consist of severance and other restructuring costs. Total expected non-cash charges are approximately $6 million, which consist of accelerated depreciation expense. Additionally, Mattel expects to invest approximately $6 million in capital expenditures to support incremental production capabilities at Mattel's other manufacturing plants.

Additionally, in the first nine months of 2023, Mattel executed other cost savings actions not included in the Program to streamline its organizational structure. In connection with these actions, Mattel recorded severance expense of $6.1 million within other selling and administrative expenses in the consolidated statement of operations.

### Liquidity and Capital Resources

Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its $1.40 billion Revolving Credit Facility, and access to capital markets to fund its operations and obligations. Such obligations may include capital expenditures, debt service, future royalty payments pursuant to licensing agreements, future inventory and service purchases, and required cash contributions and payments related to benefit plans. Of Mattel's $455.7 million in cash and equivalents at September 30, 2023, $195.5 million was held by foreign subsidiaries, including $51.5 million held in Russia. Mattel's cash held in Russia can be used within the country; however, its movement out of Russia is currently limited.

Cash flows from operating activities could be negatively impacted by decreased demand for Mattel's products, which could result from factors such as, but not limited to, adverse economic conditions and changes in public and consumer preferences, or by increased costs associated with manufacturing and distribution of products or shortages in raw materials or component parts. Additionally, Mattel's ability to issue long-term debt and obtain seasonal financing could be adversely affected by factors such as, but not limited to, global economic crises and tight credit environments, an inability to comply with its debt covenants and its Revolving Credit Facility covenants, or deterioration of Mattel's credit ratings. However, based on Mattel's current business plan and factors known to date, it is expected that existing cash and equivalents, cash flows from operations, availability under the Revolving Credit Facility, and access to capital markets will be sufficient to meet working capital and operating expenditure requirements for the next twelve months and in the long-term.

#### Current Market Conditions

Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates.

Consistent with prior periods, Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and borrowing under the Revolving Credit Facility to meet its short-term liquidity needs. At September 30, 2023, Mattel had no outstanding borrowings under the Revolving Credit Facility and approximately $9 million in outstanding letters of credit under the Revolving Credit Facility.

Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.

Mattel monitors the third-party depository institutions that hold Mattel's cash and equivalents. Mattel's emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.

Mattel is subject to credit risks relating to the ability of its counterparties in hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered in the fair value measurements of Mattel's foreign currency forward exchange contracts. Mattel closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk.

Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw materials. Mattel monitors its customers' financial condition and their liquidity in order to mitigate accounts receivable collectability risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to support the collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

Mattel sponsors defined benefit pension plans and postretirement benefit plans for its employees. Actual returns below the expected rate of return, along with changes in interest rates that affect the measurement of the liability, would impact the amount and timing of Mattel's future contributions to these plans.

#### Cash Flow Activities

Cash flows used for operating activities were $79.6 million in the first nine months of 2023, as compared to $274.8 million in the first nine months of 2022. The decrease was due to $335.1 million of lower working capital usage, partially offset by changes in net income, excluding the impact of the establishment of a valuation allowance on foreign deferred tax assets of $212.4 million and other non-cash items.

Cash flows used for investing activities were $93.9 million in the first nine months of 2023, as compared to $97.5 million in the first nine months of 2022. The change was primarily due to higher net proceeds from foreign currency forward exchange contracts of $16.8 million and lower capital expenditures of $8.8 million, partially offset by lower proceeds from the sale of assets of $19.5 million in the first nine months of 2023.

Cash flows used for financing activities were $119.5 million in the first nine months of 2023, as compared to $9.5 million in the first nine months of 2022. The increase was primarily due to share repurchases of $109.9 million in the first nine months of 2023.

#### Seasonal Financing

See Part I, Item 1 "Financial Statements—Note 8 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.

#### Financial Position

Mattel's cash and equivalents decreased $305.5 million to $455.7 million at September 30, 2023 from $761.2 million at December 31, 2022, primarily due to capital expenditures of $117.5 million, share repurchases of $109.9 million and cash flows used for operating activities of $79.6 million during the nine months ended September 30, 2023. Mattel's cash and equivalents increased $106.8 million to $455.7 million at September 30, 2023 from $349.0 million at September 30, 2022, primarily due to trailing twelve month cash flows generated from operating activities of $638.0 million, partially offset by the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022, capital expenditures of $176.7 million in the trailing twelve months, and share repurchases of $109.9 million in the first nine months of 2023.

Accounts receivable increased $710.8 million to $1.57 billion at September 30, 2023 from $860.2 million at December 31, 2022, primarily due to the seasonality of Mattel's business. Accounts receivable increased $189.5 million to $1.57 billion at September 30, 2023 from $1.38 billion at September 30, 2022, primarily due to the increase in net sales in the third quarter of 2023 compared to the prior year.

Inventories decreased $103.5 million to $790.5 million at September 30, 2023 from $894.1 million at December 31, 2022, primarily due to higher inventory production and cost inflation in 2022. Inventories decreased $293.2 million to $790.5 million at September 30, 2023 from $1.08 billion at September 30, 2022, primarily due to higher net sales in the third quarter of 2023, and higher inventory production and cost inflation in 2022.

Prepaid expenses and other current assets increased $11.3 million to $224.8 million at September 30, 2023 from $213.5 million at December 31, 2022, primarily due to increases in prepaid royalties. Prepaid expenses and other current assets decreased by $44.1 million to $224.8 million at September 30, 2023 from $268.9 million at September 30, 2022, primarily due to a decrease in derivative receivables of $31.4 million.

Accounts payable and accrued liabilities increased $103.0 million to $1.25 billion at September 30, 2023 from $1.15 billion at December 31, 2022, primarily due to increases in accrued incentive compensation of $86.3 million and accrued interest of $26.6 million. Accounts payable and accrued liabilities decreased $22.6 million to $1.25 billion at September 30, 2023 from $1.28 billion at September 30, 2022, primarily due to lower payables associated with inventory production, partially offset by an increase in accrued incentive compensation of $22.3 million.

A summary of Mattel's capitalization is as follows:

*(In millions, except percentage information)*

|  | September 30, 2023 |  | September 30, 2022 |  | December 31, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and equivalents | $455.7 |  | $349.0 |  | $761.2 |  |
| Short-term borrowings | — |  | — |  | — |  |
| 2010 Senior Notes due October 2040 | 250.0 |  | 250.0 |  | 250.0 |  |
| 2011 Senior Notes due November 2041 | 300.0 |  | 300.0 |  | 300.0 |  |
| 2013 Senior Notes due March 2023 | — |  | 250.0 |  | — |  |
| 2019 Senior Notes due December 2027 | 600.0 |  | 600.0 |  | 600.0 |  |
| 2021 Senior Notes due April 2026 | 600.0 |  | 600.0 |  | 600.0 |  |
| 2021 Senior Notes due April 2029 | 600.0 |  | 600.0 |  | 600.0 |  |
| Debt issuance costs and debt discount | (21.1) |  | (25.5) |  | (24.4) |  |
| Total debt | 2,328.9 | 53% | 2,574.5 | 57% | 2,325.6 | 53% |
| Stockholders' equity | 2,035.5 | 47 | 1,967.5 | 43 | 2,056.3 | 47 |
| Total capitalization (debt plus equity) | $4,364.4 | 100% | $4,541.9 | 100% | $4,381.9 | 100% |

Total debt, including short-term borrowings, was $2.33 billion at September 30, 2023, flat as compared to $2.33 billion at December 31, 2022. Total debt, including short-term borrowings, was $2.33 billion at September 30, 2023, as compared to $2.57 billion at September 30, 2022. The decrease was due to the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.

Stockholders' equity decreased $20.8 million to $2.04 billion at September 30, 2023 from $2.06 billion at December 31, 2022, primarily due to share repurchases of $109.9 million, partially offset by net income of $67.0 million for the first nine months of 2023 and the net effect of share based compensation and related issuance of treasury stock of $44.6 million. Stockholders' equity increased $68.0 million to $2.04 billion at September 30, 2023 from $1.97 billion at September 30, 2022, primarily due to net income in the trailing twelve months of $83.2 million and the net effect of share based compensation and related issuance of treasury stock of $57.7 million, partially offset by share repurchases of $109.9 million.

### Litigation

See Part I, Item 1 "Financial Statements—Note 20 to the Consolidated Financial Statements—Contingencies" of this Quarterly Report on Form 10-Q.

### Application of Critical Accounting Policies and Estimates

Mattel's critical accounting policies and estimates are included in the 2022 Annual Report on Form 10-K and did not materially change during the first nine months of 2023.

### New Accounting Pronouncements

See Part I, Item 1 "Financial Statements—Note 22 to the Consolidated Financial Statements—New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.

### Non-GAAP Financial Measure

To supplement the financial results presented in accordance with GAAP, Mattel presents a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC. The non-GAAP financial measure that Mattel presents is currency exchange rate impact. Mattel uses this measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Mattel believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures and may not be comparable to similarly-titled measures used by other companies.

#### Currency Exchange Rate Impact

The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates.

For entities reporting in currencies other than the U.S. dollar, Mattel calculates the percentage change of period-over-period results at constant currency exchange rates (established as described below) by translating current period and prior period results using these rates and then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates.

The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign currency exchange rates. Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year. The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates.

Mattel believes that the disclosure of the percentage impact of foreign currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends. The disclosure of the percentage impact of foreign currency exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another.

### Key Performance Indicator

Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

## Market risk

As filed, 4,050 characters.

#### Foreign Currency Exchange Rate Risk

Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. The Chinese yuan, Euro, Russian ruble, and Turkish lira were the primary currencies that caused foreign currency transaction exposure for Mattel during the first nine months of 2023. Mattel seeks to mitigate its exposure to foreign currency exchange risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its purchase and sale of inventory and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 24 months. For those intercompany receivables and payables that are not hedged, the transaction gains or losses are recorded in the consolidated statements of operations in the period in which the exchange rate changes as part of operating income or other non-operating (income) expense, net based on the nature of the underlying transaction. Transaction gains or losses on hedged intercompany inventory transactions are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. In addition, Mattel manages its exposure to currency exchange rate fluctuations through the selection of currencies used for international borrowings. Mattel does not trade in financial instruments for speculative purposes.

Mattel's financial position is also impacted by currency exchange rate fluctuations on translation of its net investments in subsidiaries with non-U.S. dollar functional currencies. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated at weighted-average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity. Mattel's primary currency translation adjustments for the nine months ended September 30, 2023 were related to its net investments in entities having functional currencies denominated in the Russian ruble, Mexican peso, British pound sterling, Brazilian real, and Malaysian ringgit.

There are numerous factors impacting the amount by which Mattel's financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time and the volume of foreign currency-denominated transactions in a given period. However, assuming that such factors were held constant, Mattel estimates that a one percent change in the U.S. dollar would have impacted Mattel's third quarter net sales by approximately 0.3% and would have less than a $0.01 impact to Mattel's net income per share.

#### Turkey Operations

Effective April 1, 2022, Mattel has accounted for Turkey as a highly inflationary economy, as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning April 1, 2022, Mattel's Turkey subsidiary has designated the U.S. dollar as its functional currency.

#### Argentina Operations

During the third quarter of 2021, Mattel began a process to liquidate its subsidiary in Argentina. The liquidation was substantially completed during the fourth quarter of 2022. Prior to the substantial completion of the liquidation, Mattel had recorded $45.4 million of currency translation adjustments in accumulated other comprehensive loss, net within its consolidated balance sheet. As a result of the substantially complete liquidation, the cumulative currency translation adjustments were removed from accumulated other comprehensive loss and recognized as a loss in other non-operating expense within the consolidated statement of operations in the fourth quarter of 2022.

## Controls and procedures

As filed, 1,428 characters.

#### Evaluation of Disclosure Controls and Procedures

As of September 30, 2023, Mattel's disclosure controls and procedures were evaluated, with the participation of Mattel's principal executive officer and principal financial officer, to assess whether they are effective in providing reasonable assurance that information required to be disclosed by Mattel in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, Ynon Kreiz, Mattel's principal executive officer, and Anthony DiSilvestro, Mattel's principal financial officer, concluded that these disclosure controls and procedures were effective to provide reasonable assurance as of September 30, 2023.

#### Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting.

## Risk factors

As filed, 142 characters.

There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038124. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.